I

107TH CONGRESS

1ST SESSION H. R. 831

To amend the Internal Revenue Code of 1986 to allow individuals a deduction

for qualified long-term care insurance premiums, use of such insurance

under cafeteria plans and flexible spending arrangements, and a credit

for individuals with long-term care needs.

IN THE HOUSE OF REPRESENTATIVES

MARCH 1, 2001

Mrs. JOHNSON of Connecticut (for herself, Mrs. THURMAN, Mr. MCCRERY,

and Mr. POMEROY) introduced the following bill; which was referred to

the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to allow individuals a deduction for qualified long-term care insurance

premiums, use of such insurance under cafeteria plans

and flexible spending arrangements, and a credit for

individuals with long-term care needs.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Long-Term Care and

5 Retirement Security Act of 2001’’.
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1 SEC. 2. TREATMENT OF PREMIUMS ON QUALIFIED LONG2 TERM CARE INSURANCE CONTRACTS.

3 (a) IN GENERAL.—Part VII of subchapter B of chap4 ter 1 of the Internal Revenue Code of 1986 (relating to

5 additional itemized deductions) is amended by redesig6 nating section 222 as section 223 and by inserting after

7 section 221 the following new section:

8 ‘‘SEC. 222. PREMIUMS ON QUALIFIED LONG-TERM CARE IN9 SURANCE CONTRACTS.

10 ‘‘(a) IN GENERAL.—In the case of an individual,

11 there shall be allowed as a deduction an amount equal to

12 the applicable percentage of the amount of eligible long13 term care premiums (as defined in section 213(d)(10))

14 paid during the taxable year for coverage for the taxpayer,

15 his spouse, and dependents under a qualified long-term

16 care insurance contract (as defined in section 7702B(b)).

17 ‘‘(b) APPLICABLE PERCENTAGE.—For purposes of

18 subsection (a)—

19 ‘‘(1) IN GENERAL.—Except as otherwise pro20 vided in this subsection, the applicable percentage

21 shall be determined in accordance with the following

22 table based on the number of years of continuous

23 coverage (as of the close of the taxable year) of the

24 individual under any qualified long-term care insur25 ance contracts (as defined in section 7702B(b)):
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‘‘If the number of years of The applicable long-term

continuous coverage is— care percentage is—

Less than 1 .................................................................. 60

At least 1 but less than 2 ............................................. 70

At least 2 but less than 3 ............................................. 80

At least 3 but less than 4 ............................................. 90

At least 4 ...................................................................... 100.

1 ‘‘(2) SPECIAL RULES FOR INDIVIDUALS WHO

2 HAVE ATTAINED AGE 55.—In the case of an indi3 vidual who has attained age 55 as of the close of the

4 taxable year, the following table shall be substituted

5 for the table in paragraph (1).

‘‘If the number of years of The applicable long-term

continuous coverage is— care percentage is—

Less than 1 .................................................................. 70

At least 1 but less than 2 ............................................. 85

At least 2 ...................................................................... 100.

6 ‘‘(3) ONLY COVERAGE AFTER 2000 TAKEN INTO

7 ACCOUNT.—Only coverage for periods after Decem8 ber 31, 2000, shall be taken into account under this

9 subsection.

10 ‘‘(4) CONTINUOUS COVERAGE.—An individual

11 shall not fail to be treated as having continuous cov12 erage if the aggregate breaks in coverage during any

13 1-year period are less than 60 days.

14 ‘‘(c) COORDINATION WITH OTHER DEDUCTIONS.—

15 Any amount paid by a taxpayer for any qualified long16 term care insurance contract to which subsection (a) ap17 plies shall not be taken into account in computing the

18 amount allowable to the taxpayer as a deduction under

19 section 162(l) or 213(a).’’.
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1 (b) LONG-TERM CARE INSURANCE PERMITTED TO

2 BE OFFERED UNDER CAFETERIA PLANS AND FLEXIBLE

3 SPENDING ARRANGEMENTS.—

4 (1) CAFETERIA PLANS.—Section 125(f) of the

5 Internal Revenue Code of 1986 (defining qualified

6 benefits) is amended by inserting before the period

7 at the end ‘‘; except that such term shall include the

8 payment of premiums for any qualified long-term

9 care insurance contract (as defined in section

10 7702B) to the extent the amount of such payment

11 does not exceed the eligible long-term care premiums

12 (as defined in section 213(d)(10)) for such con13 tract’’.

14 (2) FLEXIBLE SPENDING ARRANGEMENTS.—

15 Section 106 of such Code (relating to contributions

16 by an employer to accident and health plans) is

17 amended by striking subsection (c).

18 (c) CONFORMING AMENDMENTS.—

19 (1) Section 62(a) of the Internal Revenue Code

20 of 1986 is amended by inserting after paragraph

21 (17) the following new item:

22 ‘‘(18) PREMIUMS ON QUALIFIED LONG-TERM

23 CARE INSURANCE CONTRACTS.—The deduction al24 lowed by section 222.’’.
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1 (2) The table of sections for part VII of sub2 chapter B of chapter 1 of such Code is amended by

3 striking the last item and inserting the following

4 new items:

‘‘Sec. 222. Premiums on qualified long-term care insurance contracts.

‘‘Sec. 223. Cross reference.’’.

5 (d) EFFECTIVE DATES.—

6 (1) IN GENERAL.—Except as provided in para7 graph (2), the amendments made by this section

8 shall apply to taxable years beginning after Decem9 ber 31, 2000.

10 (2) CAFETERIA PLANS AND FLEXIBLE SPEND11 ING ARRANGEMENTS.—The amendments made by

12 subsection (b) shall apply to taxable years beginning

13 after December 31, 2002.

14 SEC. 3. CREDIT FOR TAXPAYERS WITH LONG-TERM CARE

15 NEEDS.

16 (a) IN GENERAL.—Subpart A of part IV of sub17 chapter A of chapter 1 of the Internal Revenue Code of

18 1986 (relating to nonrefundable personal credits) is

19 amended by inserting after section 25A the following new

20 section:

21 ‘‘SEC. 25B. CREDIT FOR TAXPAYERS WITH LONG-TERM

22 CARE NEEDS.

23 ‘‘(a) ALLOWANCE OF CREDIT.—
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1 ‘‘(1) IN GENERAL.—There shall be allowed as a

2 credit against the tax imposed by this chapter for

3 the taxable year an amount equal to the applicable

4 credit amount multiplied by the number of applica5 ble individuals with respect to whom the taxpayer is

6 an eligible caregiver for the taxable year.

7 ‘‘(2) APPLICABLE CREDIT AMOUNT.—For pur8 poses of paragraph (1), the applicable credit amount

9 shall be determined in accordance with the following

10 table:

‘‘For taxable years beginning The applicable

in calendar year— credit amount is—

2001 .....................................................................................$1,000

2002 ..................................................................................... 1,500

2003 ..................................................................................... 2,000

2004 ..................................................................................... 2,500

2005 or thereafter ................................................................ 3,000.

11 ‘‘(b) LIMITATION BASED ON ADJUSTED GROSS IN12 COME.—

13 ‘‘(1) IN GENERAL.—The amount of the credit

14 allowable under subsection (a) shall be reduced (but

15 not below zero) by $100 for each $1,000 (or fraction

16 thereof) by which the taxpayer’s modified adjusted

17 gross income exceeds the threshold amount. For

18 purposes of the preceding sentence, the term ‘modi19 fied adjusted gross income’ means adjusted gross in20 come increased by any amount excluded from gross

21 income under section 911, 931, or 933.
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1 ‘‘(2) THRESHOLD AMOUNT.—For purposes of

2 paragraph (1), the term ‘threshold amount’ means—

3 ‘‘(A) $150,000 in the case of a joint re4 turn, and

5 ‘‘(B) $75,000 in any other case.

6 ‘‘(3) INDEXING.—In the case of any taxable

7 year beginning in a calendar year after 2001, each

8 dollar amount contained in paragraph (2) shall be

9 increased by an amount equal to the product of—

10 ‘‘(A) such dollar amount, and

11 ‘‘(B) the medical care cost adjustment de12 termined under section 213(d)(10)(B)(ii) for

13 the calendar year in which the taxable year be14 gins, determined by substituting ‘August 2000’

15 for ‘August 1996’ in subclause (II) thereof.

16 If any increase determined under the preceding sen17 tence is not a multiple of $50, such increase shall

18 be rounded to the next lowest multiple of $50.

19 ‘‘(c) DEFINITIONS.—For purposes of this section—

20 ‘‘(1) APPLICABLE INDIVIDUAL.—

21 ‘‘(A) IN GENERAL.—The term ‘applicable

22 individual’ means, with respect to any taxable

23 year, any individual who has been certified, be24 fore the due date for filing the return of tax for

25 the taxable year (without extensions), by a phy-
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1 sician (as defined in section 1861(r)(1) of the

2 Social Security Act) as being an individual with

3 long-term care needs described in subparagraph

4 (B) for a period—

5 ‘‘(i) which is at least 180 consecutive

6 days, and

7 ‘‘(ii) a portion of which occurs within

8 the taxable year.

9 Such term shall not include any individual oth10 erwise meeting the requirements of the preceding sentence unless within the 391 11 ⁄2 month

12 period ending on such due date (or such other

13 period as the Secretary prescribes) a physician

14 (as so defined) has certified that such indi15 vidual meets such requirements.

16 ‘‘(B) INDIVIDUALS WITH LONG-TERM CARE

17 NEEDS.—An individual is described in this sub18 paragraph if the individual meets any of the fol19 lowing requirements:

20 ‘‘(i) The individual is at least 6 years

21 of age and—

22 ‘‘(I) is unable to perform (with23 out substantial assistance from an24 other individual) at least 3 activities

25 of daily living (as defined in section
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1 7702B(c)(2)(B)) due to a loss of

2 functional capacity, or

3 ‘‘(II) requires substantial super4 vision to protect such individual from

5 threats to health and safety due to se6 vere cognitive impairment and is un7 able to preform, without reminding or

8 cuing assistance, at least 1 activity of

9 daily living (as so defined) or to the

10 extent provided in regulations pre11 scribed by the Secretary (in consulta12 tion with the Secretary of Health and

13 Human Services), is unable to engage

14 in age appropriate activities.

15 ‘‘(ii) The individual is at least 2 but

16 not 6 years of age and is unable due to a

17 loss of functional capacity to perform

18 (without substantial assistance from an19 other individual) at least 2 of the following

20 activities: eating, transferring, or mobility.

21 ‘‘(iii) The individual is under 2 years

22 of age and requires specific durable med23 ical equipment by reason of a severe health

24 condition or requires a skilled practitioner

25 trained to address the individual’s condi-
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1 tion to be available if the individual’s par2 ents or guardians are absent.

3 ‘‘(2) ELIGIBLE CAREGIVER.—

4 ‘‘(A) IN GENERAL.—A taxpayer shall be

5 treated as an eligible caregiver for any taxable

6 year with respect to the following individuals:

7 ‘‘(i) The taxpayer.

8 ‘‘(ii) The taxpayer’s spouse.

9 ‘‘(iii) An individual with respect to

10 whom the taxpayer is allowed a deduction

11 under section 151 for the taxable year.

12 ‘‘(iv) An individual who would be de13 scribed in clause (iii) for the taxable year

14 if section 151(c)(1)(A) were applied by

15 substituting for the exemption amount an

16 amount equal to the sum of the exemption

17 amount, the standard deduction under sec18 tion 63(c)(2)(C), and any additional stand19 ard deduction under section 63(c)(3) which

20 would be applicable to the individual if

21 clause (iii) applied.

22 ‘‘(v) An individual who would be de23 scribed in clause (iii) for the taxable year

24 if—
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1 ‘‘(I) the requirements of clause

2 (iv) are met with respect to the indi3 vidual, and

4 ‘‘(II) the requirements of sub5 paragraph (B) are met with respect to

6 the individual in lieu of the support

7 test of section 152(a).

8 ‘‘(B) RESIDENCY TEST.—The require9 ments of this subparagraph are met if an indi10 vidual has as his principal place of abode the

11 home of the taxpayer and—

12 ‘‘(i) in the case of an individual who

13 is an ancestor or descendant of the tax14 payer or the taxpayer’s spouse, is a mem15 ber of the taxpayer’s household for over

16 half the taxable year, or

17 ‘‘(ii) in the case of any other indi18 vidual, is a member of the taxpayer’s

19 household for the entire taxable year.

20 ‘‘(C) SPECIAL RULES WHERE MORE THAN

21 1 ELIGIBLE CAREGIVER.—

22 ‘‘(i) IN GENERAL.—If more than 1 in23 dividual is an eligible caregiver with re24 spect to the same applicable individual for

25 taxable years ending with or within the
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1 same calendar year, a taxpayer shall be

2 treated as the eligible caregiver if each

3 such individual (other than the taxpayer)

4 files a written declaration (in such form

5 and manner as the Secretary may pre6 scribe) that such individual will not claim

7 such applicable individual for the credit

8 under this section.

9 ‘‘(ii) NO AGREEMENT.—If each indi10 vidual required under clause (i) to file a

11 written declaration under clause (i) does

12 not do so, the individual with the highest

13 modified adjusted gross income (as defined

14 in section 32(c)(5)) shall be treated as the

15 eligible caregiver.

16 ‘‘(iii) MARRIED INDIVIDUALS FILING

17 SEPARATELY.—In the case of married indi18 viduals filing separately, the determination

19 under this subparagraph as to whether the

20 husband or wife is the eligible caregiver

21 shall be made under the rules of clause (ii)

22 (whether or not one of them has filed a

23 written declaration under clause (i)).

24 ‘‘(d) IDENTIFICATION REQUIREMENT.—No credit

25 shall be allowed under this section to a taxpayer with re-
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1 spect to any applicable individual unless the taxpayer in2 cludes the name and taxpayer identification number of

3 such individual, and the identification number of the phy4 sician certifying such individual, on the return of tax for

5 the taxable year.

6 ‘‘(e) TAXABLE YEAR MUST BE FULL TAXABLE

7 YEAR.—Except in the case of a taxable year closed by rea8 son of the death of the taxpayer, no credit shall be allow9 able under this section in the case of a taxable year cov10 ering a period of less than 12 months.’’.

11 (b) CONFORMING AMENDMENTS.—

12 (1) Section 6213(g)(2) of the Internal Revenue

13 Code of 1986 is amended by striking ‘‘and’’ at the

14 end of subparagraph (K), by striking the period at

15 the end of subparagraph (L) and inserting ‘‘, and’’,

16 and by inserting after subparagraph (L) the fol17 lowing new subparagraph:

18 ‘‘(M) an omission of a correct TIN or phy19 sician identification required under section

20 25B(d) (relating to credit for taxpayers with

21 long-term care needs) to be included on a re22 turn.’’.

23 (2) The table of sections for subpart A of part

24 IV of subchapter A of chapter 1 of such Code is
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1 amended by inserting after the item relating to sec2 tion 25A the following new item:

‘‘Sec. 25B. Credit for taxpayers with long-term care needs.’’.

3 (c) EFFECTIVE DATE.—The amendments made by

4 this section shall apply to taxable years beginning after

5 December 31, 2000.

6 SEC. 4. ADDITIONAL CONSUMER PROTECTIONS FOR LONG7 TERM CARE INSURANCE.

8 (a) ADDITIONAL PROTECTIONS APPLICABLE TO

9 LONG-TERM CARE INSURANCE.—Subparagraphs (A) and

10 (B) of section 7702B(g)(2) of the Internal Revenue Code

11 of 1986 (relating to requirements of model regulation and

12 Act) are amended to read as follows:

13 ‘‘(A) IN GENERAL.—The requirements of

14 this paragraph are met with respect to any con15 tract if such contract meets—

16 ‘‘(i) MODEL REGULATION.—The fol17 lowing requirements of the model regula18 tion:

19 ‘‘(I) Section 6A (relating to guar20 anteed renewal or noncancellability),

21 and the requirements of section 6B of

22 the model Act relating to such section

23 6A.
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1 ‘‘(II) Section 6B (relating to pro2 hibitions on limitations and exclu3 sions).

4 ‘‘(III) Section 6C (relating to ex5 tension of benefits).

6 ‘‘(IV) Section 6D (relating to

7 continuation or conversion of cov8 erage).

9 ‘‘(V) Section 6E (relating to dis10 continuance and replacement of poli11 cies).

12 ‘‘(VI) Section 7 (relating to unin13 tentional lapse).

14 ‘‘(VII) Section 8 (relating to dis15 closure), other than section 8F there16 of.

17 ‘‘(VIII) Section 11 (relating to

18 prohibitions against post-claims un19 derwriting).

20 ‘‘(IX) Section 12 (relating to

21 minimum standards).

22 ‘‘(X) Section 13 (relating to re23 quirement to offer inflation protec24 tion), except that any requirement for

25 a signature on a rejection of inflation
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1 protection shall permit the signature

2 to be on an application or on a sepa3 rate form.

4 ‘‘(XI) Section 25 (relating to pro5 hibition against preexisting conditions

6 and probationary periods in replace7 ment policies or certificates).

8 ‘‘(XII) The provisions of section

9 26 relating to contingent nonforfeiture

10 benefits, if the policyholder declines

11 the offer of a nonforfeiture provision

12 described in paragraph (4).

13 ‘‘(ii) MODEL ACT.—The following re14 quirements of the model Act:

15 ‘‘(I) Section 6C (relating to pre16 existing conditions).

17 ‘‘(II) Section 6D (relating to

18 prior hospitalization).

19 ‘‘(III) The provisions of section 8

20 relating to contingent nonforfeiture

21 benefits, if the policyholder declines

22 the offer of a nonforfeiture provision

23 described in paragraph (4).

24 ‘‘(B) DEFINITIONS.—For purposes of this

25 paragraph—
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1 ‘‘(i) MODEL PROVISIONS.—The terms

2 ‘model regulation’ and ‘model Act’ mean

3 the long-term care insurance model regula4 tion, and the long-term care insurance

5 model Act, respectively, promulgated by

6 the National Association of Insurance

7 Commissioners (as adopted as of Sep8 tember 2000).

9 ‘‘(ii) COORDINATION.—Any provision

10 of the model regulation or model Act listed

11 under clause (i) or (ii) of subparagraph

12 (A) shall be treated as including any other

13 provision of such regulation or Act nec14 essary to implement the provision.

15 ‘‘(iii) DETERMINATION.—For pur16 poses of this section and section 4980C,

17 the determination of whether any require18 ment of a model regulation or the model

19 Act has been met shall be made by the

20 Secretary.’’.

21 (b) EXCISE TAX.—Paragraph (1) of section

22 4980C(c) of the Internal Revenue Code of 1986 (relating

23 to requirements of model provisions) is amended to read

24 as follows:

25 ‘‘(1) REQUIREMENTS OF MODEL PROVISIONS.—
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1 ‘‘(A) MODEL REGULATION.—The following

2 requirements of the model regulation must be

3 met:

4 ‘‘(i) Section 9 (relating to required

5 disclosure of rating practices to con6 sumer).’’

7 ‘‘(ii) Section 14 (relating to applica8 tion forms and replacement coverage).

9 ‘‘(iii) Section 15 (relating to reporting

10 requirements), except that the issuer shall

11 also report at least annually the number of

12 claims denied during the reporting period

13 for each class of business (expressed as a

14 percentage of claims denied), other than

15 claims denied for failure to meet the wait16 ing period or because of any applicable

17 preexisting condition.

18 ‘‘(iv) Section 22 (relating to filing re19 quirements for marketing).

20 ‘‘(v) Section 23 (relating to standards

21 for marketing), including inaccurate com22 pletion of medical histories, other than

23 paragraphs (1), (6), and (9) of section

24 23C, except that—
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1 ‘‘(I) in addition to such require2 ments, no person shall, in selling or

3 offering to sell a qualified long-term

4 care insurance contract, misrepresent

5 a material fact; and

6 ‘‘(II) no such requirements shall

7 include a requirement to inquire or

8 identify whether a prospective appli9 cant or enrollee for long-term care in10 surance has accident and sickness in11 surance.

12 ‘‘(vi) Section 24 (relating to suit13 ability).

14 ‘‘(vii) Section 29 (relating to standard

15 format outline of coverage).

16 ‘‘(viii) Section 30 (relating to require17 ment to deliver shopper’s guide).

18 The requirements referred to in clause (vi) shall

19 not include those portions of the personal work20 sheet described in Appendix B relating to con21 sumer protection requirements not imposed by

22 section 4980C or 7702B.

23 ‘‘(B) MODEL ACT.—The following require24 ments of the model Act must be met:
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1 ‘‘(i) Section 6F (relating to right to

2 return), except that such section shall also

3 apply to denials of applications and any re4 fund shall be made within 30 days of the

5 return or denial.

6 ‘‘(ii) Section 6G (relating to outline of

7 coverage).

8 ‘‘(iii) Section 6H (relating to require9 ments for certificates under group plans).

10 ‘‘(iv) Section 6I (relating to policy

11 summary).

12 ‘‘(v) Section 6J (relating to monthly

13 reports on accelerated death benefits).

14 ‘‘(vi) Section 7 (relating to incontest15 ability period).

16 ‘‘(C) DEFINITIONS.—For purposes of this

17 paragraph, the terms ‘model regulation’ and

18 ‘model Act’ have the meanings given such terms

19 by section 7702B(g)(2)(B).’’.

20 (c) EFFECTIVE DATE.—The amendments made by

21 this section shall apply to policies issued more than 1 year

22 after the date of the enactment of this Act.

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